Per User vs. Per Device: Managed Services Pricing Debate Ends

Per User vs. Per Device: Managed Services Pricing Debate Ends

Within the SMB managed services market a multi-year debate has been raging: Should managed services providers develop price-per-user or price-per-device business models for MRR (monthly recurring revenues)? I heard a surprising answer to that debate during the recent TruMethods Schnizzfest event in Philadelphia, Pa. Here's the answer and the background.

The surprise answer: Increasingly, some of the best MSPs user neither business model. Instead, top MSPs are pursuing a so-called "price per engagement" or "price per experience" model. Privately, top MSPs continue to figure out their per-user and per-device support costs, and then build in the appropriate margin. But publicly, those MSPs refrain from discussing per-user or per-device pricing.

Instead, the top MSPs offer a total services price -- covering everything from help desk and NOC services to monitoring and management of IT infrastructure. Building on that theme, TruMethods CEO Gary Pica called on MSPs to stop selling ingredients (patch management, remote monitoring, anti-spam, etc.) and start selling chocolate cake (that is, the total user experience).

Hidden Numbers

During multiple sessions at TruMethods Schnizzfest, top MSPs described how they continue to generate roughly $100 to $130 per user per month in recurring revenues -- without breaking out the individual per-service fees to customers. Moreover, several MSPs said that they no longer accept SMB engagements that fall below a minimum MRR (monthly recurring revenue) fee, typically $2000 or so.

Two MSPs who went on record:
  • White Glove Technologies CEO Tommy Wald, who said he's using the price-per-engagement model to blanket small office customers. Instead of nickel and diming customers when they add a piecemeal service or a new managed PC, White Gloves' contracts include a clause that allows the MSP to raise annual rates -- roughly 3 to 4 percent or so.
  • masterIT CEO Michael Drake, who said he's using the per-experience model. Although it sounds like masterIT still sells on a per-user level, masterIT no longer breaks out the price of each individual service. Instead, Drake pitches masterIT as a trusted advisor and/or virtual CIO to his SMB clientele. And for that virtual CIO service, customers are going to pay for the complete masterIT experience -- rather than one-off services.

No Magic Bullets

Are all MSPs taking the approaches outlined above? Certainly not. During the TruMethods conference, plenty of established MSPs mentioned rising competition from aspiring MSPs that charge as little as $10 per seat for basic managed services.

But when low-ball or lower-price rivals emerge, leading MSPs like IT Solutions CEO Ted Swanson re-frame the customer conversation -- pointing out that it's impossible for aspiring MSPs to deliver high-quality service at low-ball pricing. When customers say a proposed price is too expensive, the best MSPs re-frame and re-set the conversation by stating: "Compared to what?" notes TruMethods' Pica, himself a former MSP.

Once the MSP has pinpointed the customers' frame of reference, it's easier to re-set the pricing conversation and drive back to the original value and service delivery conversation.

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